Mobile Money Transfer (MMT)

Mobile Money Transfer (MMT) is a peer to peer form of mobile payment mechanism which has the best prospects for success amongst other forms of mobile transactions. The GSM Association has picked up MMT as a project and is supporting its members in embracing MMT.

The money transfer has been in existence since the time the money was invented by man. Man has moved from one place to another in search of work and in many cases, leaving the family behind in his hometown. The families’ back home get support from the money the migrant population sends back home. Forms of money transfer have changed over the years. The most primitive method being either carrying the money themselves when they visit back home or send it through a friend or acquaintance. For the last many years, many people have been dependant on Postal Services to remit money home. This service was popularly known as money order in many countries including Great Britain. Postal services are known to have branches where even the banks do not offer services. This envious position of postal departments is being taken over by mobile services as their distribution network starts to out number other traditional distribution networks. Today, mobile operators have the largest distribution network in any developing economy and hence are in a better position to remit money from one location to another.

The World Bank estimates that remittances totaled $397 billion in 2008, of which $305 billion went to developing countries, involving some 190 million migrants or 3.0% of world population. The money received is an important source of family (and national) income in many developing economies, representing in some cases a very relevant percentage of the GDP of the receiving countries. As per another World Bank estimates, the cost of money transfer varies from 2.5% to 25% depending on the sending and receiving country combination. This high cost of money transfer is forcing people to try alternative ways of money transfer and telecom companies are more than willing to oblige them. Given the size of the mobile industry, the subscriber penetration and the technology, it is not surprising that mobile money transfer has evolved in the cellular space. Major operators with international and inter-regional footprints such as Vodafone and Orascom Telecom have announced their intention to deploy mobile remittance, which they hope will act as a catalyst for the wider adoption of mWallet-enabled transaction services. The cost of money transfer over mobile is much lower than other available mechanisms.

MMT started as peer to peer airtime transfer. Later, the people in the low income group without credit cards started to barter airtime with products. In a way, mobile airtime started to be used as a proxy for cash. The balance transfer mechanism was introduced by the carriers using electronic recharge method to reduce the distribution cost of low value recharges. When the control of airtime transfer was given to consumers, airtime started to be passed on and traded in exchange for goods or services. Kenya and Philippines were the first few markets where P2P informal payment systems have developed into more formal money transfer services.

Initially the airtime transfer was restricted to the same carrier but later on as the demand increased, companies like Redknee (Roaming Recharge Platform), eServeGlobal, etc. started to provide interoperability across carriers. The money can be transferred using a SMS or using a platform based on USSD or IVR. The process of mobile money transfer is detailed in the figure below:

The key entities involved in the mobile money transfer are retailers and one or more entities out of the rest of the four listed below:

Cash-in/ Cash-out retailers and

Banks, or

Mobile Carriers, or

Handset Vendors, or

3rd Party Money transfer enablers

The business models depend a lot on the regulatory freedom given by the central banks. There are essentially three prevalent business models in the field of MMT.

The business models in mobile money transfer are very similar to mobile payments. For further details on these models, please refer to my earlier post on mobile payments business models

Critical Success Factors

The process of mobile money transfer may look very simple and intuitive but there are many factors that could derail the evolution of this exciting money transfer mechanism. A few of the critical success factors are listed below:

Consumer Acceptance – For any service to be successful, the consumer acceptance is a necessary precondition. Consumers are looking for easy to use, secured and cost efficient money transfer service. Consumers especially in the developing country may not be very comfortable with technology and may not have too much help at hand. This means that the service should be intuitive and should use an existing mechanism like SMS or IVR or USSD. USSD is better as it is more secured than other two. Consumers value security!!! The cost of transfer should be far lower than the other means of prevalent money transfer mechanisms. The service providers should work towards building trust amongst the consumers. It would make a lot of sense if the most trusted brands in the business can come together to offer mobile money transfer services.

Building of Adequate Ecosystem –The ecosystem in MMT would include the customer acquisition setup, distribution and retailer network, technology provider and the banks. The service providers should have enough outlets where the consumers can get the mobile money loaded on their phone (cash-in) and can also exchange the mobile money for cash (cash-out). Consumers are not going to travel 10 kilometers to avail the service. Treasury management, liquidity management and customer transactions management are some of the new skills that the service provider needs to learn unless there is a bank that is involved in the ecosystem. Insufficient liquidity management can kill the service

Regulation – The future of mobile money transfer is dependant on the regulatory environment in various countries. The central banks across the world need to appreciate that the risk associated with mobile money transfer is low and hence they should be ready to exempt some of the regulations when it comes to MMT. “Appropriate” and “Proportionate” regulatory environment should be the approach followed by regulatory authorities. At the same time, the service providers should fully comply with the rules and regulations laid out with respect to KYC (Know Your Customer), AML (Anti Money Laundering), CFT ( Combating Financing of Terrorism), controlled risk matrix, etc.

Service Provider Outlook – the carriers should not view this service from the prism of their existing mobile services. Mobile money transfer is not just another VAS service and is neither a service to control churn and enhance retention. Churn reduction can be a by-product of this service but cannot be the objective in itself. Adequate top management focus should be there on this service otherwise, it may not take long before the service provider goes bankrupt due to liquidity and treasury mismanagement. There are new competencies that are required to be added to provide this service and unless a carrier or any service provider is willing to commit itself for the long haul, it is not worth getting into this service. It is essential to conduct a proper risk assessment before committing resources to this business.

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About The Author

Mohit

Mohit is a telecom professional with rich experience over 15 years. His expertise is in the area of strategy and planning and his work experience includes stints with two of Big 5 consulting organizations, a telecom operator and a handset vendor. Mohit can be reached at mohit@telecomcircle.com

As a person who is currently working on something near to MMT, I would like to share the below points/concerns for MMT to be successful. Some of them may be trivial, but still would like to mention them.

[1] The end user/subscriber experience has to be really simple & intuitive.
[2] Though you mention that for the end user it may look simple, in reality I am not aware of any real MMT systems/deployment.
[3] It has to be made secure as well as simple for the end user to have confidence to start using it & do large transfers.
[4] As always, the regulatory bodies will start rearing their heads with unnecessary issues which should not affect the end user experience.
[5] MMT has to be made available for B2B, B2C, C2C & C2B transactions.
[6] Those who would be promoting/launching MMT need to have hell lot of patience for the technology to catch on & later on be prepared to handle the huge transactions that will be made. I dont feel MMT to be a big hit in the market as soon as its launched as the subscribers will be very apprehensive about the security, that too in conventional markets. Once the same is popular with people, the transactions will be huge as is the case with internet banking.
[7] There should be no major restrictions in the transactions based on their operator or bank accounts. It has to be very similar to normal banking. This will be a major roadblock for its success.
[8] The billing systems (post & prepaid) systems should be revamped to support MMT.
[9] Last but not least in markets like India, where churn is very high, it needs to be seen how operators ensure revenue loss after a MMT is done by a subscriber but simply throws away his sim card after the transaction.

Certainly the business model depend a lot on the regulatory freedom given by the central banks however mobile operators come into the game. The technology has been available for a good while, the question would be why Organizations such as WE, MG.. did not launch such services yet?
My understanding is that the market is simply no ready yet, most of money transfers transactions are performed by customers who does not use technology and only trust big names with a good receiving network. This may be the answer.

Mobile money transfer is interesting in that the simple, probably most useful from of it is already available in the form of Internet payment systems such as PayPal.

Here we get into the attempts to define mobile money transfer as a unique capability that is depenedent on the mobile device and network. These certainly are the modus operandi of the day but they hold little cache as the way forward.

Why does a separate system need to be set up that tariffs the exchange of payments and commerce while adding very little legitimate value?

Just because wireless operators hole monopolies on spectrum should not allow them to artificially impose mechanisms that stipend off a piece of every transaction. The role that wireless networks should and likely will play as they become open to IP conventions is to service the secure communications needs of available and new transaction clients.

Undoubtedly there will be much made and systems put in place to control how MMT occurs. How it can and should occur is as a communications interface for commerce to proliferate. Attempts to stranglehold open commerce will inevitably fail due to inefficiency and free choice.

Where MMT has merit is in establishing commercial devices and payment systems including merchant terminals capable of working with leading vendors mobile devices.

As far as restrictions – the likely trend will follow Internet norms for open commerce. If an operator, web service or new entrant offers easy and acceptably secure payment systems, they will gain market share. Payments yield to the most common denominators and attempts by individual operators to dominate their customer base will likely give way to user preference.

A critical issue will be the attempt of existing payment service providers (i.e. banks) to influence the central bank/banking regulator to prevent non-banks from offering the service. There will be many arguments from the banking sector as to why this should be so – specifically the extent of the overall values being transferred (which if the scheme succeeds will be considerable) to KYC-AML-CFT issues.

The only motive for not having an incisive regulatory attention from Gorvenments is because they are not seeing the money yet. When the usage and the taxes beeing payed on invoices become interesting according to the amount of transactions, you must bet they will regulate the MMT very quickly… 🙂

I feel that MMT is a reality and the future for payments. Its how the stakeholders bring it to the masses.

the truth is the convenience factor especially in these times of anxieties. We are entering the age of wisdom as called by Stephan Covey. The regular activities must be made so much easier that human resource could be diverted for more intellectual work.

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